It’s an exciting time when you’re looking for your first home. The idea of having somewhere permanent to call your own and to be paying your own mortgage not somebody else’s is appealing. You’ve scrimped and saved for a deposit and now you’re ready to take the plunge. But what are the common pitfalls that first-home buyers need to be aware of?
1) Not putting yourself in the best position to obtain a home loan
As a first-home buyer you want to do everything that you can to persuade the bank to give you a mortgage. This means ensuring not only that you can demonstrate that you have saved a substantial deposit but that you also have a strong credit score (by always paying bills on time), you have minimised or eliminated any unnecessary debt, and that your income is sufficient to sustain the mortgage payments.
2) Not getting a pre-approval
Obtaining a pre-approval from a bank will enable you to know the maximum amount that they are willing to lend to you. Having a pre-approval will mean that the process of buying a house runs more smoothly and efficiently and puts you in a stronger negotiating position.
3) Borrowing too much money
Your bank is likely to approve you for a loan that is more than you can realistically afford. You should not use this as a reason to purchase a property with a huge mortgage as the worst thing a first-home buyer can do is put all their funds towards their mortgage. It is important to remember that there are various other costs associated with owning a house and that by over-leveraging on a property, the inevitable consequence of an interest rates rise is that loan repayments may become impossible to meet. In addition, if a personal emergency occurs you don’t want to be caught short.
4) Other costs
Carey Brunel from HomeLoan.co.nz warns of other costs when you buy a home that catches first home buyers out and says “It’s important to research all the costs associated with doing so. Some examples are: the cost of moving out of your current accommodation, the money for the building report and Land Information Memorandum (LIM), conveyancing fees for your lawyer, home and/or lenders mortgage insurance, rates, and repairs and maintenance. These should all be factored into the calculations before deciding on the price range that you are looking for.”
5) Skipping the building inspection
Faced with a series of expensive steps to undertake before buying a house, it is understandably tempting to ignore any that aren’t compulsory. However doing so could have disastrous consequences. For example, choosing not to get a building inspection is never a good idea. A building inspection can tell you whether the property has any structural defects, areas of damp or mould, or areas that need repair or re-painting.
6) Insufficient advice from the professional
Reducing your costs by obtaining only perfunctory assistance from the professionals would be a terrible mistake. Your lawyer can ensure the sale and purchase agreement protects you, that you fulfil all the requisite legal commitments and that you maintain total control over the purchase of the property. In addition, a mortgage broker or adviser can help you navigate through the maze of what can be a daunting first home purchase.
7) Forgetting about the home start grant
Some people forget that they may be eligible for a HomeStart grant and should check their eligibility. The grant is worth $1,000 per year of making KiwiSaver contributions — with a minimum of $3,000 and a maximum of $5,000. These values double if you are purchasing a new home, a property bought off the plans or land to build a new home on. The income eligibility criteria is a maximum of $85,000 in the past 12 months for a sole buyer and a combined income of $130,000 for two or more buyers.